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A financial journey to our first million dollar

Posts Tagged ‘funds’

ETFs and Index Funds in Our Portfolio

March 11th, 2010

We have just added a new page in our blog, called Portfolio. You can access it from the links at the top of our blog. This page contains the complete picture of our portfolio. As we mentioned in our previous posting, we use ETFs and index mutual funds. We also use dollar-cost averaging in our retirement account. Lastly, we try to keep our portfolio as simple as possible.

15% US Index

PowerShares QQQ Trust, Series 1 ETF (NASDAQ:QQQQ)
BlackRock Enhanced Capital and Income Fund (NYSE:CII)

15% Canadian Index

CIBC Canadian Index (CIB300)

15% Emerging Market Index

Claymore Canadian BRIC ETF (TSE:CBQ)
Market Vectors Brazil Small Cap ETF (NYSE:BRF)
Claymore/AlphaShares China Small Cap ETF (NYSE:HAO)

30% Fixed Income

TD Canadian Bond Index (TDB966)
iShares iBoxx High Yield Corporate Bonds ETF (NYSE:HYG)
PowerShares Financial Preferred Portfolio ETF (NYSE:PGF)

5% REIT

Vanguard REIT ETF (NYSE:VNQ)
iShares Canadian S&P/TSX Capped REIT ETF (TSE:XRE)

Notes

For the US index, we basically invest in Nasdaq-100 and S&P 500. We use a closed-end funds (CII) for S&P 500 because of its dividend. Check also our posting here for a couple of different closed-end funds that replicates S&P 500.
Although Canada represents only 2% of the world GDP, we maintain a pretty high percentage of Canadian index. Why? It’s just because we live in Canada. Our “native” currency is Canadian dollar.
We know that CIBC Canadian Index might not be the best mutual funds. However, we have to keep it this way until end of next year.

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Posted in Portfolio

Tags: BRF CBQ CII ETF funds HAO HYG index nasdaq PGF Portfolio QQQQ s&p 500 stocks

Comparing Closed-end Funds that Replicates S&P 500′s

March 4th, 2010

We mentioned in our previous posting that we allocate a small amount of our portfolio into closed-end funds. We also recommend you to do research before buying closed-end funds because they tend to be more expensive than ETFs. Besides, some closed-end funds use leverage which will add risk.

We would like to compare a couple of closed-end funds that track S&P 500, i.e.:

All those three funds are basically buying stocks in S&P 500. They tried to outperform S&P 500 by writing options (covered call). That’s why; if you look at their fact sheets, they pay very high dividend. BlackRock’s Enhanced Capital and Income Fund, for example, pays 12.64% dividend. Yes, it’s double-digit dividend.

Now, let’s compare the performance of those funds to SPY, which is the biggest ETF that replicates S&P 500. As you can see, none of those funds can beat SPY in the long run. From year 2007 until today, here are the return of those funds:

CII: –25.05%
ETB: –22.37%
JCE: –39.67%
SPY: –21.44%

Of course, if you choose the right funds, the overall return including dividend might be higher than SPY.

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Posted in Investment

Tags: CEF CII closed-end dividend ETB funds JCE s&p 500

Buying Closed-end Funds?

March 3rd, 2010

Some experts have been recommending a couple of closed-end funds recently because of their high-yield dividend. See also recommendations from two speakers at Money Show Orlando 2010 here and here.

For those who are new to closed-end funds, here is the description from Investopedia.com.

A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.

Closed-end funds are usually designed to offer more income to investors, either by using leverage or covered call. Yes, you see the word leverage there; so it means more risks.

There are a couple of closed-funds company out there, such as BlackRock (also the issuer of the very popular iShares ETFs), Eaton Vance, Nuveen, ING, Alpine and many more.

Personally, we allocate a very small amount of money in closed-end funds. Why?

The management fee of closed-end funds tends to be higher than ETFs. Worse, the fee information is sometimes not easy to find.
Many closed-end funds are traded at very large premium or discount (more than 10% is quite normal). It is going to be tricky when we are about to buy or sell.
Some closed-end funds are using too much leverage, which can be very risky.

If you want to invest in closed-end funds, do your own research or talk to your financial advisor. There are some good closed-end funds that may provide additional income in this kind of market. CEFConnect.com has a very good closed-end funds screener.